Farmers are bracing themselves for yet another steep fuel price increase in July, with data showing that consumers could face an increase of about R2 in the price of both petrol and diesel. Should the current trend continue into the last months of the year, Mzansi’s grain farmers, especially, say they are in for major profit losses.
Month-end data from the Central Energy Fund is pointing to a hike of around R1.80 per litre for petrol and R1.60 per litre for diesel. However with the general fuel levy for July only being decreased by 75 cents, the cost of fuel could in reality be pushed up by over R2, says AA spokesperson Layton Beard.
Agri Western Cape CEO Jannie Strydom says the large amounts of fuel that grain farmers use in their activities are already bearing down on them.
Should price increases persist beyond October, there will be major consequences for the profitability of the grain industry as a whole, he tells Food For Mzansi, as grain farmers across the country are set to either harvest winter grains or plant their summer grains.
“Due to the large share that fuel constitutes of the total direct input cost of these industries, the increased diesel will impact negatively on the profitability of these producers.”
The effect will be back-to-back seasons of major price hikes, as farmers already had to absorb fuel price increases amid the planting season of winter cereals and the harvesting season of summer grains.
Cascading effect on the value chain
Senior agriculture economist at First National Bank Paul Makube says that, while the petrol price hike will not go down well for grain farmers, harvesting for agricultural subsectors such as livestock, horticulture and citrus will also be affected.
“The escalation in fuel costs does not bode well for producers as production costs are likely to escalate across the value chains that manifest differently from planting, harvesting, distribution and packaging.”
Makube adds that grain producers and logistics companies in the value chain will feel the pain as close to 80% of grain is transported by road.
“Meanwhile, livestock and horticulture, including citrus harvesting, coupled with the export season being in full swing, will also be affected in terms of distribution across the country as well as for exports,” he says.
Makube anticipates the petrol hike to also bump up food prices and suppress already struggling consumers.
Little farmers can do
To add insult to injury, the rising costs are externally driven, which means that farmers will just have to bear them it they want to keep on farming. Farmers will remain at the mercy of developments on the international markets, Makube says. “We import almost 80% of our domestic fertiliser requirements.”
Until internal capacity is developed to increase domestic production, there’s in other words not much farmers can do.
“Similarly, South Africa is a net importer of crude oil and its derivatives such as fuel, pesticides and herbicides which are critical for farming operations.”
Farmers are always engaging with their funders to assess their current and future financial needs in an ever-changing operating environment, Makube says. “The bank always strives to assist clients and this is done based on their individual requirements and the state of their business at a particular point in time… This is conducted in line with the regulatory environment in which we operate.”
Makube says agriculture subsidies have proven to be unsustainable in the long term with one of the unintended consequences being the build-up of inefficiencies in value chains that ultimately constrain sector growth.
According to him, the long-term interventions that should be adopted without delay include technologies and techniques that would minimise the use of fertiliser and fuel operations and such techniques could be precision farming.
Power cuts making things worse
Meanwhile, both Makube and Strydom agree that the country’s power cuts are making matters worse for the sector. The implementation of stage 6 load shedding forces the hand of many producers, in various agricultural industries, with limited options.
“Producers in the poultry, dairy, agro-processing, agritourism and cold chain-dependant agricultural industries are left without a choice as to use alternative sources of energy.
“The majority use diesel-powered generators as an alternative energy source at an exorbitant cost, given the current price of diesel,” Makube says.
Meanwhile, Strydom is of the opinion that the knock-on effect of the fuel price increase will spill over to the rest of the value chain.
“We foresee that it will accelerate consumer price inflation, especially on the categories of food and non-alcoholic beverages and transport, which are already some of the main contributors of the annual inflation rate.”
Further increases in the consumer price inflation will be detrimental to the economy of the country, Strydom points out, as it is still recovering from the fallout of the Covid-19 pandemic.
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